Monday, July 2, 2007

Iran and the American way of life

State legislators in Georgia express outrage about gas taxes while Hawaii suspended its state excise. Connecticut considers a summer gas tax "holiday" and residents in Eugene want to roll back a recent city gas tax increase. Meanwhile, bloggers around the U.S. express their wishes for lower gas excises.

Maybe these folks should look to Iran to be their example. To encourage domestic petroleum use, the Iranian government subsidizes gasoline so that motorists pay the equivalent of 38 cents per gallon. The short-sighted, selfish side of me loves the idea of 38 cents/gallon.

Iranians love it also. The program has worked so well that Iran must now import half of its gasoline, resulting in an enormous hit on the government's budget.

To rescue the national budget, officials talked about reducing the subsidy, but the response was rioting in the streets. Last Wednesday, the nation started rationing gasoline purchases. The result: shortages, long lines at gas stations, violence and deaths, and destroyed gas stations.

Controlling the price of gasoline through government intervention is a losing game. Prices in Hawaii dropped significantly when the state tax went away. The same law that eliminated the excise, however, also criminalize any increased profit that oil companies might make because of the reduced cost of doing business. If the gas stations can't increase margin, the only way to control demand is to ration the gas supply. It will interesting to see how this plays out in Hawaii.

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